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Section 80CCF was formulated in the budget of the year 2010 and came into force in the budget 2011. The government provides this deduction which would otherwise have been taxed for the assesses. The government introduced this section to complement the deduction under Section 80C. Since India is a growing country, the infrastructure is at a fast-rising pace and thus this is a beneficial situation for both the government and the taxpayers. The deductions under Section 80CCF are eligible for only a certain type of investment.
About Section 80CCF
For claiming deductions under Section 80CCF, the taxpayer should comply with certain basic conditions. Let us take a look at these prerequisites
The Income Tax Act of 1961 does not state any particular bonds which can be claimed as a deduction under Section 80CCF. All infrastructure bonds issued by The Life Insurance Corporation, Industrial Financial Corporation of India, Integrated infrastructure Finance Company and other approved NBFs are eligible for deduction. Other factors to be considered while selecting the bonds are-
Mrs. Sandhya, a finance professional has a salary of Rs. 4.9 lakhs per annum. As per the Income Tax Act,1961 he needs to pay a tax on his income exceeding Rs. 2.5 lakhs that is Rs. 2.4 lakhs. His taxable income is Rs. 2.4 lakhs. His taxable income is eligible for deduction under Section 80C. The deduction available under Section 80C is Rs. 1.5 lakhs. The income of Mrs Sandhya is Rs. 90,000. To reduce his tax liability, he invests in infrastructure bonds offered by a top bank. The amount invested is Rs. 30,000. Out of the amount invested, Mrs Sandhya will get a deduction of Rs. 20,000. The tax liability of Mrs Sandhya is now Rs. 70,000 as she will get a deduction of Rs. 20,000. The tax liability is reduced by a considerable amount.
The infrastructure bonds issued in the financial year 2011-1012 are maturing in the financial year 2021-22. The bonds provided a tax benefit at the time of investment but the interest is taxable for the taxpayer. The two options provided to investors for these bonds were-
Annual interest payout option
Cumulative interest option
In the annual payout option, the tax has already been paid by the investors on the interest amount received. On the other hand, the investors who opted for the cumulative interest option end up paying more tax than saved in the year of investment.
The interest on long term infrastructure bonds is taxable. The interest earned annually for the annual option selected and for the aggregate receipt on maturity for the cumulative option is added to the taxable income of the investors.
Residents payers, who have opted for the cumulative option in physical format will be subject to tax deducted at the source. The rate is ten per cent for payment redemption exceeding Rs. 5,000.
No TDS is applicable for investors holding bonds in demat form.
For non-resident taxpayers, TDS at the rate of 31.2% is applicable on the interest payouts.
For availing of an exemption on TDS, the taxpayers can submit form 15H/15G. The taxpayers if they have not provided PAN at the time of investment, need to update PAN within the stipulated time for the respective bonds as specified by the issuers of bonds.
Non-resident bondholders need to submit a tax officers order under section 197/195 specifying NIL/lower TDS rate within the stipulated date to ensure that the TDS rates as per the specified order are applied.
1. Is the maximum investment amount Rs. 20,000 per annum?
The maximum investment amount can be more than Rs. 20,000 but the deduction is limited to Rs. 20,000 per annum
2. Is demat account necessary for the application of infra bonds?
Yes, demat account is necessary for the application of infra bonds.
3. What is the tenure of infra bonds?
The maximum tenure of infra bonds is ten years
4. Are these bonds tax-free?
No, the interest incurred on these bonds is taxable. Interest is the income earned from these bonds.
5. What are the maximum benefits one can avail per annum?
The maximum benefits one can avail per annum by investing in these bonds is Rs. 20,000.
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